Banks and Labor as Stakeholders: Impact on Economic Performance

Claessens, Stijn; Ueda, Kenichi

doi:10.2139/ssrn.1543287

Cited by 8 publications

(13 citation statements)

References 61 publications

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“…The result is consistent with Claessens and Ueda (), who find that the positive effect of EPL on output growth in knowledge‐intensive industries is weaker in US states with more stringent bank branch regulation, and with Calcagnini et al . () and Cingano et al .…”

supporting

confidence: 91%

“…The present study arguably focuses on the range of EPL where the relationship between EPL and capital‐labour ratios is positive (very much as Autor et al ., ; and Claessens and Ueda, , who study the low‐EPL US labour market). The 1990 Italian reform, in fact, mandated a moderate increase in the cost of unfair dismissals for previously exempted small firms, plausibly on the increasing side of the capital–EPL relationship.…”

mentioning

confidence: 99%

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Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Cingano

Leonardi

Messina

et al. 2015

Econ J

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This article estimates the causal impact of dismissal costs on capital deepening and productivity, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for larger firms. We show that the rise in firing costs induced an increase in the capital-labour ratio and a decline in total factor productivity in small firms relative to larger firms. Our results indicate that capital deepening was more pronounced at the low-end of the capital distribution -where the reform hit arguably harder -and among firms endowed with a larger amount of liquid resources. We also find that stricter Employment Protection Legislation (EPL) raised the share of high-tenure workers, which suggests a complementarity between firm-specific human capital and physical capital in moderate EPL environments.If dismissal protections cannot be undone by Coasean bargaining, theory predicts that employment protection legislation (EPL) acts as a tax on both hiring and firing, reducing accessions and separations with an ambiguous final effect on the employment level. The reason is that firing costs provide incentives to retain workers whose wage exceeds their productivity during bad times and not to hire workers whose wage lies below their productivity during good times (Bentolila and Bertola, 1990). While there is a large body of evidence confirming this theoretical prediction (see the recent review by Skedinger, 2011), less is known about the impact of dismissal costs on other firm level outcomes, as capital deepening and productivity.The theoretical predictions of the impact of EPL on capital deepening are in fact ambiguous. In competitive models with no financial and labour market frictions, an increase in EPL is expected to raise the cost of labour and induce capital-labour substitution, distorting production choices and reducing allocative efficiency (Autor et al., 2007); in the long-run firms can change their production techniques and adopt more capital-intensive technologies (Caballero and Hammour, 1998;Alesina and Zeira, 2006;Koeniger and Leonardi, 2007). On the contrary, in models with labour market frictions and wage bargaining, stricter EPL exacerbates the 'hold-up' problem typical of investment decisions and reduces the stock of capital per worker (Bentolila and Dolado, 1994;Garibaldi and Violante, 2005). However, the relationship between EPL and capital intensity can turn positive if physical capital and firm-specific human

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supporting

confidence: 91%

mentioning

confidence: 99%

Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Cingano

Leonardi

Messina

et al. 2015

Econ J

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“…Allen et al (2007) predict that such stakeholder-oriented firms, which are concerned with employees and suppliers in addition to shareholders, will often prosper in competition with purely shareholder-oriented firms, though they also predict that the cost to consumers from such less-than-purely competitive behavior may be high. Claessens and Ueda (2008) present empirical evidence supporting this prediction, though Lee et al (2008) show that employees suffer financially from over-investing in their employers' stocks.…”

Section: Theoretical Motivation and Hypotheses Developmentmentioning

confidence: 69%

Employee ownership, board representation, and corporate financial policies

Ginglinger

Megginson

Waxin

2011

Journal of Corporate Finance

101

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French law mandates that employees of publicly listed companies can elect two types of directors to represent employees. Privatized companies must reserve board seats for directors elected by employees by right of employment, while employee-shareholders can elect a director whenever they hold at least 3% of outstanding shares. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2008, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders increase firm valuation and profitability, but do not significantly impact corporate payout policy. Directors elected by employees by right significantly reduce payout ratios, but do not impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and perhaps value-enhancing in the case of directors elected by employee shareholders. _______________________________________ IntroductionShould employees be allocated control rights in the companies for which they work? This question has long been debated, but has picked up impetus recently as societies have struggled to balance worker rights with effective corporate governance. While the collapse of communism has removed the most extreme examples of employee ownership, Germany and other countries mandate that workers be represented on corporate boards, and most western democracies encourage employee share ownership through tax, compensation, and pension policies. However, it is still unclear whether employee ownership or representation on the corporate board of directors increases firm value or productivity. This study exploits a natural experiment in mandated employee representation conducted in France--a major western country with both a market economy and a long tradition of robust worker employment protection-to determine whether giving workers control rights without cost to them creates value, and whether directors elected by employees who are also shareholders have a differential impact on firm value than do directors elected by workers as a right of employment.Employing a sample of French companies provides a unique institutional setting for empirical analysis. French law mandates that employees of large publicly listed companies be allowed to elect directors for two reasons. First, privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Since privatized firms are easily the largest and most valuable companies in France, this requirement induces significant representation on the boards of an important and highly visible group of companies by directors elected by workers who are not also shareholders. Second, employee-shareholders in any publicly listed firm have the legal right to elect one director whenever they hold at least 3% of outstanding shares. Additionally, French law allows but...

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“…There are not many papers that investigate empirically the joint influence of imperfect financial and labour markets on investment, with the notable exceptions of Classens and Ueda (2008) and Calcagnini and Giombini (2008).…”

Section: Identification Of the Joint Effect Of Epl And Financial Markmentioning

confidence: 99%

The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries

Cingano

Leonardi²,

Messina³

et al. 2010

Economic Policy

150

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" Exploiting information from a panel of European firms we study the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation. We find that EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors, while increasing the average frequency at which firms adjust their capital stock. The reduction in capital per worker and value added per worker is less pronounced in financially sound firms. Also, the propensity to invest appears to increase only in firms that are likely to be financially unconstrained. Overall, poor access to credit markets seems to exacerbate the negative effects of EPL on capital deepening and productivity". Copyright (c) CEPR, CES, MSH, 2010.

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Banks and Labor as Stakeholders: Impact on Economic Performance

Cited by 8 publications

References 61 publications

Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Employee ownership, board representation, and corporate financial policies

The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries

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